Sunday, December 10, 2017

Another Bitcoin Trading Problem After Massive Bitcoin Sell-Off

One of the points I have been making at the EPJ Daily Alert is that, among other problems, transaction execution is a danger that faces Bitcoin speculators.

Bitcoin surged on Thursday to a then record high of $19,340 on the Coinbase exchange. Just Wednesday, it traded in the range of $14,800.

But then selling came in and the digital currency fell more than 20 percent from that level to $15,198.63.

Then things got really interesting. Traders who tried to sell Bitcoin on Coinbase, saw this message:

Trading in Bitcoin was halted for approximately 30 minutes. See chart below. The red box marks the period when trading was halted. The blue arrow shows the peak price.

Clearly, it was the selling that came in and the surge in volume that jammed the Coinbase computers.

And now Business Insider reports:

Gemini, the cryptocurrency exchange founded by the famous Winklevoss twins, has extended a scheduled maintenance of its site after a massive bitcoin sell-off.

The company said Friday night that its site would undergo maintenance from 8:00 a.m. to 1:00 p.m. ET Saturday, adding that users shouldn't expect "downtime." Still, the site appeared to be down for some users during the period, preventing folks from accessing their cryptocurrency accounts.

At around 1:00 p.m. ET the company said the maintenance would continue:

Twitter

The outage coincided with a massive bitcoin sell-off, which shaved more than $1,500 of its price, according to Markets Insider data. By 1:22 p.m. ET, bitcoin was trading down 11% against the US dollar at $14,305 a coin. The outage infuriated some users who were unable to move their coins around as bitcoin's price slid. One person criticized the firm for not giving users enough notice on the original maintenance:

Twitter

Here's another discontent tweeter:

Twitter

“This is not the first scaling challenge we’ve encountered, and it won’t be the last,” Gemini said in a blog post. “We’re continuing to improve our performance and infrastructure monitoring so we can anticipate potential problems more quickly in the future.”

It should be recognized that in the grand scheme of things these selloffs have been relatively minor, if there ever is ever serious selling in Bitcoin, never mind panic selling, there is no way the Bitcoin trading structure appears capable of handling the selloff---and I am not even addressing the danger of a massive fantastical spike in transaction costs that could occur, which is another related transaction-type cloud that lingers over Bitcoin.